Why natural gas vehicles could be the future of natural gas (Part 10 of 10)
AGL versus its peers
As noted in the following table, AGL Resources Inc. (GAS) is the largest company by market capitalization and enterprise value (or EV) among the peer group. Atmos Energy (ATO) comes in second based on these metrics in the group of select companies, while Clean Energy (CLNE) is smaller than the peer average.
CLNE reported a loss at the earnings before interest, tax, depreciation & amortization (or EBITDA) level, and also recorded a net loss for the past 12 months. Among others, GAS recorded the highest EBITDA and net earnings. However, GAS recorded the lowest EV to EBITDA multiple at 7.7x, among its competitors, while Piedmont Natural Gas (or PNY) has the highest EV to EBITDA ratio at 11.1x in the group.
Given that GAS’s debt to EBITDA ratio is in line with the peer average, and that it trades at the lowest EV to EBITDA, GAS’s equity could be undervalued compared to its peers.
In the past 12 months, only CLNE recorded net loss. PNY has the highest price earnings (or P/E) multiple, while GAS has the lowest. A higher P/E multiple typically indicates higher earnings growth or growth expectations.
However, for 2014, the sell-side analysts project that PNY has the highest forward P/E ratios, closely followed by ATO. Forward P/E considers the sell-side analysts’ consensus estimate of earnings for the year considered.
A higher P/E multiple typically indicates higher forecast earnings growth. The analysts’ consensus foward EV to EBITDA multiple is the lowest for GAS in 2014. Forward EV to EBITDA is another multiple to gauge the relative valuation. A lower multiple, accounting for debt levels, typically indicates the stock is undervalued among its peers. CLNE may continue to record net loss in 2014.
Key exchange-traded funds (or ETFs)
The energy services companies mentioned above would benefit from increased use of compressed natural gas (or CNG), and some of these are components of the Utilities Select Sector SPDR (XLU) and the SPDR S&P 500 (SPY).
Browse this series on Market Realist:
- Part 1 - Must-know: The natural gas vehicle phenomenon
- Part 2 - Must-know: Are natural gas vehicles the future of US transport?
- Part 3 - Must-know: Gas versus gasoline
- natural gas vehicles
- Atmos Energy